“Goods denominated in pesos sold in dollars are starting to get more expensive; Even if foreigners buy the same number of goods, it will be converted into fewer pesos,” explained Jessica Roldan, Chief Economist of Finamex.
On the other hand, a strong currency helps reduce the cost structure, which will benefit Mexican consumers through lower prices: “This may also be a reason to see some products in the National Consumer Price Index (INPC). A better behavior”, the expert added.
Intermediate non-oil imports from Mexico account for more than 70% of total international purchases. Víctor Ceja, chief economist at Valores Mexicanos (Valmex), said that when capital imports are added, total imports rise to 82%.
Between January and May of this year, Mexico’s trade balance recorded a deficit of 6.382 million dollars, according to figures from the Bank of Mexico (Banksico). Total exports added 240,168 million; Cons: 246,550 million imports.
The best way to ensure that sales abroad are not affected by the super weight is to increase production capacity: “It is important that Mexican products continue to be globally competitive. For that to happen, economic policies will take time to materialize,” said Jessica Roldan.
The reorganization of supply chains and migration, which Mexico has benefited from, will help boost production through skilled labor, he said.
Economists interviewed say that in an economy like Mexico, which imports intermediate goods ($189,003 million from January to May) and exports finished goods, there is a relatively small deficit to look for and it is financed by foreign direct investment.
While the Mexican economy had a surplus, it was in dire straits because there was no external demand for Mexican goods, Víctor Ceja recalled.
What’s Next for Superweight?
The short-term horizon should be at these levels against the dollar; However, the exchange rate is estimated to reach 18 pesos by the end of the year, Roldan and Ceja point out.
The following year, “We believe these conditions are not sustainable; Levels closer to 18.50, even 19 pesos per dollar, are high in line with the structural characteristics of the economy,” said a Finamex representative.
Although a shallow and short-lived U.S. recession is expected through mid-2024, demand for Mexican products, particularly automobiles, will remain strong until then.
Those affected by the strong peso are remittance recipients, adding to this the loss of purchasing power from inflation, which reduces purchasing power.
